Profit is essential to life – that is why capitalism is so overwhelmingly successful, and why socialism is such a failure – in spite of the best efforts of less-free governments and socialist-leaning American politicians to subvert that truism.

Not Seeing the Forest for the Trees:

For Americans, capitalism is a normal, pervasive part of life.  And yet, as immersed in it as we are, it is not always easy to see capitalism in action.

That makes reading a book like “I Love Capitalism”, by Ken Langone, almost give you the feeling of reading a fairy tale.  But this fairy tale really happened.

The book is technically an autobiography – but it is exciting reading, and like a fairy tale, the good guys win.  Time and again throughout Ken’s life, he simply refused to lose:  he kept on pushing and working until he made each endeavor a success.  

See What Perseverance Can Do!

As the saying goes, he did it right.  There were numerous opportunities to undercut other businessmen – to cheat – but Ken built his reputation for fair play.  While it meant he did not get the quick and easy dollar, in each instance he ultimately earned a far greater payoff – and often laid the foundations for even greater financial success.  People were also apt to help him when he needed it.

See What Setting High Moral Standards Can Do!

Langone worked hard to develop his understanding of finance.  In addition to his on-the-job experience, he pursued a Bachelors degree and later, an MBA.  His MBA thesis title is a mouthful:  “Anti-dilution Covenants of Convertible Securities”.

Supply and Demand

While in college, Langone was always looking for ways to make enough money to scrape by.  Students at that time were required to wear ties; he would buy a hundred ties at a dollar each, and then sell them to other students for $1.50 or $1.75.

Corporate Finance

Langone writes that he was fascinated by corporate finance and mergers and acquisitions.  This is something most of us never see.  But it is definitely exciting.

The first real job of his career involved investing money for an insurance company.  They would buy notes and bonds in private sales from other corporations.  Their focus was mainly on industrials, public utilities, and railroads.

When he started out, Langone was a poor kid from a blue-collar neighborhood.  Investing companies want MBA graduates, so while putting in a lot of hours getting started in his first job, he went to school nights to get his MBA.

From that insurance company’s investments department, he moved on to a firm that made large stock sales for institutional investors.  Langone was great at opening up new accounts with banks, asset managers, insurance companies, trusts, pension funds, and employee programs.  

Langone put together a bond-with-warrant package for Kenner, a toy company.  That gave them the money for expansion – remember the Flintstones?  Kenner needed to build a new plant to produce Flintstone toys.  

Morals Story

Then Langone went on to sell the bonds to institutions who invest in bonds.  In the course of such a sales pitch, he had to detail the downsides as well as the upsides – which built investors’ trust of Ken Langone as a person to do business with.  He made his sales – and then made even bigger repeat sales.

The Economy

Especially for large companies, the state of the economy and the potential government actions that might impact a company’s operation are a major issue.  For companies like Standard Oil of New Jersey, for example, Langone would take the company’s Investments VP to seminars by leading economists, trying to discern what types of businesses could be good candidates for investment in their stocks – with those investments measured in hundreds of thousands of shares per company.

Rewarding Talent Breeds Success

Langdon introduced a bonus system for the analysts who did the research on potential investments. Research that resulted in profitable trades would be rewarded.  The result:  Suddenly the “back room” analysts were working a lot harder to increase the reliability of their recommendations.  

The result:  more profit.

But Langone’s first love remained corporate finance, mergers, and acquisitions.

Initial Public Offering

Computer facilities management was a new concept in 1968.  The undisputed leader was Electronic Data Systems (EDS), a private company owned by Ross Perot.  Perot was ready to take it public – to have an Initial Public Offering (IPO) and sell shares of stock.  Langone beat his competitors and won the business of handling the IPO.  

EDS could be expected to grow at a literally fantastic rate.  Langone convinced Perot to set the stock’s price for the IPO at one hundred times earnings; others had felt the IPO’s stock price should only be 30-40 times earnings.  

Langone later revised the IPO stock price to be 115 times earnings.  At IPO, the stock sold at $16.50 a share.  

Under-promise and Over-deliver

EDS stock went to $25 a share the first day it was issued.  Soon it was selling for $75 a share, and within a year and a half, it had risen to $162.50 per share.

Fortune magazine called the IPO “the greatest personal coup in the history of American finance.”

Home Depot

As a result of another corporate acquisition, Langone became involved with the home-improvement store market.  The result was a chain of stores we all know today:  Home Depot.

Finance

Corporate finance – especially that for the very largest companies is an area of finance that few of us ever get to be involved in or typically see.  

This kind of financial dealing is exciting and lucrative.  It requires an education and the right type of experience and drive to rise to the top.  

Those who think “business majors are for football players” are blind to the potential opportunities that are beyond a horizon which those people will never reach.  

As in any field of endeavor, the visionary who pursues his dream and perseveres through all the naysayers and impediments can achieve any level of success he can imagine.

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